Turnaround predicted for South African poultry industry

The troubled South African poultry industry is poised for a turnaround, market analyists are predicting.

The sector has been through a difficult few years, weighed down by cheap imports, soaring feed costs, weak consumer demand and impending regulations to cap the levels of brining allowed in frozen chicken products.

Nine smaller producers have either gone under, filed for business rescue or been absorbed by larger companies in recent months. Astral Foods has recently snapped up the assets of two producers at liquidation auctions, South African publication Business Day has reported.

The sector was reprieved last year when tariffs were imposed on imports from most regions — though Europe was exempt due to free-trade agreements. However, the sector has since lobbied for duties on “below-cost” imports from Europe.

The International Trade Administration Commission of South Africa (Itac) sent an investigative team to Germany and the Netherlands as part of its verification process. Spokesman Thembinkosi Gamlashe says that the investigation “is still in progress” and a preliminary determination — which could grant interim protection — is expected to be made within the next two months.

Vunani Securities analyst Anthony Clark, points to a possible decline in maize prices and import protection as the main reasons for a turnaround in the sector. He warns however, that the recovery will be very gradual, as “there are too many variables out there which are beyond the control of anyone in the sector”. The upturn will be held back by food price inflation and a rising interest rate cycle, which will further stretch consumers.

Clark says, importantly, the bigger maize harvest this year could translate into lower input prices in the second half of the year. Feed costs, which are largely made up of maize, account for about half the costs of raising a chicken. Input costs have been abnormally high in recent months on high international maize prices and local shortages.

South African Poultry Association CEO Kevin Lovell expects that by midyear, the maize price should drop, while the association is hoping for “provisional protection against European dumping” by the end of next month. “It will take a little while for the effects of that to flow through. So there’s a chance that quarter three could start to look better,” Lovell says. “We are still in the bottom of the trough. I don’t think it’s going to get worse but I do think it’s going to take a little while before it gets better.”

Source: BDLive